Initiatives

Overview

The financial crisis and its economic aftershocks have spawned the first serious examination of the structure of our current banking system and the public policies that have fueled consolidation over the last 30 years and untethered financial institutions from their communities.

Overview

Access to the Internet is an essential infrastructure for any community that cares about economic development, quality of life, and educational opportunities. Unfortunately, most communities are presently dependent on a few unaccountable absentee corporations that act as gatekeepers to...

Overview

Wind and sun are available everywhere, so renewable energy can be economically harnessed at small scales across the country. This nature of renewable energy, and the exponential increase of renewable energy generation, promises to decentralize the nation’s grid system. ...

Overview

Over the last 25 years, a handful of giant companies have grown to dominate the U.S. economy. ILSR challenges the wisdom of this market concentration. Through research and analysis, we have built a compelling case that places that are home to...

Overview

At the founding of the American Republic the word “private” had pejorative connotations. Derived from the Latin word “privare”, private meant to divide or tear apart. A privateer was a pirate. The word “public” was an honorable adjective, often...

Overview

ILSR's Waste to Wealth program helps communities across the country create policies and practices that address citizens' environmental concerns and economic needs. We help citizens fight the incinerators and landfills that pollute their air and water, and drive property...

The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/federal-solar-tax-credits-rule-out-half-americans/

The difference between clean energy policies with a democratizing influence and the bewildering U.S. system can be illustrated with a close look at the federal investment tax credit for solar power. The investment tax credit returns up to 30% of a solar PV system value to the developer, and the credit can be carried over for 5 years (until 2016, when the entire tax credit may expire as it has in the past).

Unfortunately, many of the institutions and individuals that could invest in solar power are not able to use the credit simply because it’s based in the tax code.

For the moment, we’ll leave out the obvious non-taxable entities like schools, nonprofits, governments and focus just on the impact of the federal solar incentive on residential solar. A large portion of the thousand of megawatts of solar being installed in California, Colorado, and other large solar markets is going on home rooftops.

A typical residential solar PV array is around 5 kilowatts (kW), with a cost of $41,000 ($8.20 per Watt), so the federal tax credit has a maximum value of $12,300.

A family of four in the U.S. with the median family income of $44,000 has an estimated tax burden of $2,000 and would require just over 6 years to successfully absorb the tax credit on a 5 kW residential solar array. But tax law only gives them 5 years to use the credit (and the credit may expire again in 2016, as federal renewable energy incentives have in the past).

The picture is only worse for those families with lower income (and tax liability), effectively ruling out half of Americans from using the solar tax credit.

Filling status makes little difference, with slightly more than half of individual filers able to use the full federal tax credit than married, joint filers. (note: the tax estimations assumed that the family of four would claim zero exemptions but any deductions or credits associated with having two children).

Ultimately, a great number of Americans are not able to finance solar projects economically simply because the incentive is based in the tax code.

To be fair, a significant drop in the price of solar PV (from $8.20 to $5.00 per Watt, for example) could increase the number of Americans who could capture the full credit for a given system size (reducing the non-participants to 45% of Americans), but the tax credit still leaves out millions of potential individual solar investors.

And of course, schools, cities, and nonprofits have always been left out entirely.

In contrast, incentive schemes that don’t depend on tax credits (such as production payments) can be used by anyone. Yetanotherreason the U.S. should reconsider using the tax code for its renewable energy incentives.

About John Farrell

John Farrell directs the Energy Self-Reliant States and Communities program at the Institute for Local Self-Reliance and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. More